NCSL May Revisit Stance Fighting State & Local Tax Deduction Repeal

The state and local tax deduction, barely saved from elimination in the 1986 tax reform after fierce lobbying by New York, is slated for partial elimination in the House tax bill and complete elimination in the Senate tax bill. There has been a strong debate about the provision, including pieces by us on how 88 percent of the deduction’s benefit goes to taxpayers with incomes over $100,000, that just six states claim more than half of the deduction’s value, that the deduction subsidizes higher state and local taxes, and that the deduction isn’t necessary to prevent double taxation.

One powerful voice on the topic may be considering a less hardline position. In August, the National Conference of State Legislatures (NCSL) unanimously adopted a resolution setting out the organization’s principles for federal tax reform, including a goal of “preserving the state and local income tax, sales tax and property tax deductions for federal income tax purposes.” A consequent bipartisan letter from NCSL executives to Congress urged them, among other issues, “to reject any tax reform legislation that modifies or eliminates the SALT deduction…” In September, NCSL signed onto a coalition to save the deduction.

On Saturday, NCSL’s State and Local Tax Task Force voted 12 to 2 to request revisiting of NCSL’s position against SALT repeal. It was moved by North Dakota Sen. Dwight Cook (R) and seconded by Wisconsin Rep. John Macco (R), and the dissenting states were Minnesota and New Mexico. The second thoughts appear to be driven by the lack of acknowledgment that many states are agnostic to SALT repeal as part of a comprehensive tax overhaul. Many yes votes came from states that want to keep SALT but nonetheless respect their colleagues who want to reopen the discussion.

The next step will be action by the NCSL Budget and Revenue Committee in mid-December. I don’t see them acting, as timing is a problem (proposed resolutions had to be submitted last week, so they’d need to strike and amend an existing proposal). But even this vote is a big statement.